Issues faced by UCB are i Management Issues ii Finance issues iii Regulatory issues iv Operational I...........

Economic and Social Issues Rural Banking and financial institutions

Recently, Reserve Bank of India (RBI) imposed restrictions on withdrawals from the Punjab and Maharashtra Cooperative (PMC) Bank, one of the largest urban cooperative lenders. The bank has been barred from granting, renewing and loans and advances, make any investments and accept fresh deposits, without the prior written approval from the RBI. Bank was put under regulatory restriction for a period of six months due to irregularities like fraudulent loans, excessive lending to Housing Development & Infrastructure Ltd (HDIL) etc. After initially encouraging UCBs to spring up all over India for financial inclusion, the RBI began to wake up to their poor governance from 2005 when it stopped issuing new UCB licenses. Co-operative Banks, which are distinct from commercial banks, were born out of the concept of co-operative credit societies where members from a community group together to extend loans to each other, at favorable terms.Cooperative banks are currently under the dual control of the Registrar of Cooperative Societies and RBI. While the role of registrar of cooperative societies includes incorporation, registration, management, audit, supersession of board and liquidation, RBI is responsible for regulatory functions such maintaining cash reserve and capital adequacy, among others.

Issues faced by UCB are

i Management Issues

ii Finance issues

iii Regulatory issues

iv Operational Issues

v Structural issues

Select the correct answer using the code given below

i. ii, iii and iv only

ii, iii, iv and v only

i. iii, iv and v only

All of the above

none of these

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Explanation:

Issues faced by UCB

•Management issues:

Such banks are sometimes hijacked by vested political interests. This could mean favoritism in appointments, sanction of fraudulent loans which are later written off, forcing government employees to hold salary accounts with cooperative banks and so on.

•Regulatory issues:

RBI’s supervision of cooperative banks is not as stringent as that of commercial banks. Typically, the state government audits cooperative banks while RBI inspects their books once a year.

•Structural issues:

Most of them are single-branch banks and have the problem of correlated asset risk. This means the entire bank can come down if there is a local problem of significant scale.

They have a small capital base. For example, urban cooperative banks can start with a capital base of Rs 25 lakh compared to Rs 100 crore for small finance banks.

•Operational issues:

UCBs face a unique problem – restricted by their cooperative nature, they cannot issue fresh equity to shore up capital. The only capital growth they have, therefore, has to be in line with the growth of the business of their clientele.